Newspaper article The Chronicle (Toowoomba, Australia)

Financial Accounts Must Be Understood in Context

Newspaper article The Chronicle (Toowoomba, Australia)

Financial Accounts Must Be Understood in Context

Article excerpt

COMPANIES, not-for-profit organisations, regional councils, theatres, many other entities, all have to produce financial reports.

The law requires them, members and customers expect them, auditors and accountants love them.

Whatever end-of-year financial statements are to you, they are bread and butter to auditors and accountants.

Treasurers have field days. People who fancy themselves as being financially literate have a glint in their eyes when they see balance sheets, P and L's and stuff like that.

Hang on, though! A partial understanding of such things is one thing but the proper interpretation of what it all means can be quite something else.

Annual financial reports, particularly when they state income and revenue and consequent surplus or deficit, describe financial performance over the financial year to which they refer.

These "P and L" results don't tell the whole story. You need skills with balance sheets and such mysteries as cash flows, current and non-current assets, liabilities and other stuff that people with degrees and calculators take years to master.

They usually get paid handsomely for sharing their wisdom.

Well-meaning journalists looking for a story must be very wary when they look at things like the Toowoomba Regional Council's annual report.

When they read, for example, in the latest TRC report that the Empire Theatre Foundation has apparently made a loss of $883,400 in the 2014-2015 financial year (ended June 30 2015), eyes light up! There must be a story there!

A good investigative question could be "Is that true and if so, how come a successful theatre could stuff up like that?" This question is better asked before publication of any reference to it rather than afterwards.

A corollary to that question might be "How long has this been going on?"

A simple look at the annual report for the previous year might make a good starting point.

In the case of the Theatre Foundation, a glance at the 2013-2014 report would have revealed that its end-of-year result (30 June 2014) was a profit of $1,113,170! …

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